When common sense and sound judgment go up in smoke

Government’s proposed anti-tobacco bill lacks any scientific assessment as an underlying principle of legislation, argues Tim Cohen, senior editor of Business Day. In a news story, Nick Hedley says tobacco company Philip Morris International sees South Africa’s tobacco regulations as an impediment to its plan to phase out cigarette brands in favour of healthier alternatives.Meanwhile, experts warn that diminishing cigarette branding and display will play into the hands of the illicit trade, Cohen writes in a Financial Mail cover story.

When common sense and sound judgment go up in smoke

Sometimes I think government legislates by using a random word generator designed to kick out the latest international trend, which is then slapped into law at the whim of someone in the administration, writes Tim Cohen for Business Day. There are plenty of examples, but the latest one to pique my interest is the Control of Tobacco Products and Electronic Delivery Systems Bill, otherwise known as the Tobacco Bill.

‘The bill has, like all good disasters, good intentions; to reduce smoking and dependence on addictive substances. But for the past few weeks I have been discussing various aspects of the tobacco industry with a huge variety of people for a cover story that appeared this week in the Financial Mail.

‘The story is really about the subversion of the SA Revenue Services (Sars) as much as it is about the tobacco industry; so the focus is on direct cigarette tax, called excise duty.

In the process, Cohen ‘looked a bit more closely at the Tobacco Bill, which in the morass of SA politics I hadn’t really looked at very closely before. What I discovered is startling, although perhaps “discovered” is probably overstating the case since everything is out there for everyone to see.

‘The bill does five main things: first, it forces cigarette sellers to disguise the sales point. In other words, cigarette display boxes have to be removed from shelves, and if you want a pack, you have to specifically ask for it. Second, it forces tobacco companies to remove all branding from packets. This means packs will have the name of the brand on the outside in a defined font and colour, the smoking warning, and nothing else.

‘The legislation contains nothing on excise enforcement, even though Sars has been talking about track and trace systems for over more than a decade.

‘Third, it will remove indoor smoking areas in public places, so no more smoking rooms in restaurants and at airports. Fourth, you will no longer be able to smoke outdoors in certain designated areas, including close to the door of an office, because someone might catch a whiff of smoke and instantly keel over. You also won’t be able to smoke in your own home in front of guests or servants, and “smoking” is defined as holding a cigarette, not actually inhaling it.

‘These are all arguable issues; they have been tried outside SA in various places. They don’t really work – but whatever.

‘It’s the fifth issue that really gets my goat,’ Cohen continues in Business Day. ‘The legislation places the same restrictions on vaping that it does on smoking. This is so even though the legislation itself acknowledges that there is no evidence that vaping has any long-term health issues.

‘The legislation says it’s doing so because vaping may encourage people to smoke. I just don’t understand this. In other words, the government has completely dispensed with any objective, scientific assessment as an underlying principle of legislation.

‘Imagine if that idea were applied to other areas and subjects? Oh, hang on, it is applied to other areas and subjects. But in fact, the international evidence is precisely the opposite. Smokers are moving from cigarettes to vaping to help them give up smoking precisely because it’s less harmful.

‘There is obviously some risk that it will encourage people to take up smoking, but because the whole point of vaping is that it removes the main carcinogens normal cigarettes contain, it seems logical that the legislation’s assumption that they are equally bad is just factually wrong,’ writes Cohen.

‘There is one other scientific issue here. An academic from the University of Cape Town, Corne van Welbeek, has been following smoking legislation with enormous diligence for a long time and has done some very specific research on smoking incidence and tax rates and profitability that goes all the way back to 1961. His research and that of his colleagues has given rise to at least two interesting findings.

‘The first is that as excise tax on cigarettes started going up, smoking started to decline. From a public health point of view, making cigarettes more expensive worked. About a third of all smokers stopped, and only about 20% of the South African population now smokes regularly. I suspect this number is a bit low, but be that as it may, this is what the data shows.

‘The second finding is that around the time of Nkosazana Dlamini-Zuma’s smoking restrictions, including bans on public smoking and warnings on packets, smoking increased.

Yes, you read that correctly,’ says Cohen. ‘The reason, surmises Van Welbeek, is that although the restrictions might have had some effect, they are not visible in the numbers because the main driver here is price, and this was the period of high economic growth in SA. In other words, because we were getting richer, the number of people who could afford to smoke, or smoke more, increased, outweighing the possible effect of the restrictions.

‘What this shows is the randomness of the legislation. If reducing the number of smokers was really important to legislators, the scientific approach would be to enforce excise tax more rigorously and thereby make smoking more expensive. That’s what undoubtedly works.

‘But the legislation contains nothing on excise enforcement, even though Sars has been talking about track and trace systems for more than a decade. In fact, it introduces regulations that improve the position of the illicit industry, which will therefore undoubtedly increase smoking incidence.

‘The only fair conclusion is that the government wants, through this legislation, to look as though it’s doing something when it is not actually doing anything,’ Cohen argues in Business Day. ‘The question is, who benefits from all that? The obvious answer is the illicit trade, which is now about 40% of the total market.

‘I suspect the fact of the matter is that the new tobacco producers have got their hooks into some key politicians, and they are now dragging them around by the nose. I’m willing to bet we will hear more about this in future.’

Philip Morris International, one of the biggest tobacco companies in the world, sees South Africa’s mooted tobacco regulations as an impediment to its plan to phase out its cigarette brands, such as Marlboro, in favour of healthier alternatives, writes Nick Hedley for Business Day.

The New York-listed cigarette and tobacco giant wants to ultimately replace all its cigarettes with new products that do not produce harmful smoke, such as e-cigarettes and its new iQOS range of devices that heat instead of burn tobacco.

However, the company said if it goes ahead in its current form, SA’s Control of Tobacco Products and Electronic Delivery Systems Bill will restrict the communication and marketing of all tobacco products, including e-cigarettes and products such as iQOS.

The bill includes provisions that introduce plain packaging and ban point-of-sale advertising and displays.

That means consumers may never know about new-generation products such as iQOS, which produce “90% less of the dangerous components” of traditional cigarettes, said Marcelo Nico, Philip Morris’s MD for Southern Africa.

“What we encourage government to do, and it’s in the submissions we made on the draft bill, is to separate the combustion burning of tobacco versus smokeless products like iQOS – they should be treated differently because this is part of the solution.”

The 7-million smokers in SA “should be given an alternative”, Nico told Business Day, adding that “progressive governments” in other markets had focused their regulations on harm reduction rather than blanket bans.

The Tobacco Institute of Southern Africa (Tisa) and the Vapour Product Association (VPA) have already warned of job losses if the bill is passed as is. They argue that the government should rather focus on stamping out the untaxed illicit cigarette market.

Illicit products cost the fiscus R27bn in lost revenue between 2010 and 2016, according to Tisa, which represents tobacco growers and manufacturers.

Nico said illegal cigarettes, which now account for nearly a third of all sales in SA, were “the single biggest issue for the industry”.

Meanwhile, he said Philip Morris wants at least 30% of its global volumes to come from smokeless products by 2025.

“In SA, our main effort is creating an SA free of smoke by offering these alternatives.”

As part of those efforts, Philip Morris plans to open a flagship store in Johannesburg to raise awareness among consumers. The group had also inserted notes in more than 10-million Marlboro packs this year to promote smokeless products, Nico said.

Since smokeless products use less tobacco, Nico said it is inevitable that demand for the plant would reduce over the long run. As such, the company is “working with” suppliers to educate consumers about alternative crops and other sustainability practices.

The attempt to clamp down further on smoking by diminishing branding and display will only play into the hands of the illicit trade, experts warn, writes Tim Cohen in a 22 November Financial Mail cover story.

SA’s draconian new tobacco laws are being viewed sceptically even by neutral interested parties. This is especially because, though they go so far as to ban smoking at home in the presence of domestic helpers, the legislation doesn’t even try to address the multibillion-rand tax shortfall in excise duties.

SA’s existing attempts to control the sale of cigarettes are “a joke”, says one independent source, and the attempt to clamp down further on smoking by diminishing branding and display will only play into the hands of the illicit trade, experts warn.

The Tobacco Products Control Amendment Bill is out for public comment, and industry groups have slated it, particularly because it seeks to classify “vaping” in the same category as cigarettes, even though the bill itself notes that the long-term health effects of “vaping” are unknown.

The legislation also restricts the public display of cigarettes in shops and supermarkets — which, established players warn, is likely to enhance the position of illicit cigarette sales because it will diminish the role of brands in public choice.

The legislation would hurt established players but, significantly, it has also drawn criticism from academics. UCT academic Corné van Walbeek, who has tracked smoking trends, says that measures taken by the government in the early 2000s — to restrict smoking areas, ban smoking in restaurants and add warnings to packets — had limited effect, and cannot be seen in aggregate numbers.

Increasing the cost of smoking, on the other hand, did have a major effect — reducing smoking by about a third, Van Walbeek found.

This implies that rather than placing more emphasis on area and advertising restrictions, it would be more effective from a public health point of view to concentrate on ensuring that the 40% of cigarette sales that take place in SA without excise payment should be the focus of government action.

SA does have an existing system which requires cigarette makers to place an embossed, diamond-shaped stamp on the packet, but the stamp is easy to replicate and there is no licensing system for the stamp itself. Cigarette packs do contain barcodes which contain sales information and product descriptions, but the SA Revenue Service (Sars) cannot read these, and the legislation does not require cigarette makers to allow Sars to do so.

The solution is something called a “track and trace” system, which essentially requires cigarette packs to include secure printing and security features comparable to those used on passports.

Michael Eads, MD of consultancy Sovereign Border Solutions, says Kenya increased its revenue by 38% in the first year of implementing this system, and Brazil’s excise tax collection increased by 105% in five years.

He estimates, based on his experience, that it would take six months or less to set up such a system.

Sars has been studying and discussing this issue for a decade, but though it has modernised every other tax type, it has not updated excise other than through a re-platforming of the IT environment.

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